IDEAS home Printed from
   My bibliography  Save this paper

Nonlinear Price Adjustment and Transaction Costs Between Global Stock Markets


  • Jae-Young Kim
  • Woong Yong Park


Depository receipts (DRs) are instruments issued in a foreign market representing ownership in the underlying securities on the home stock market. DRs are practically the same as the underlying stocks and we can analyze price adjustment between the underlying stocks and DRs under the law of one price. The price differential would not disappear immediately due to the lack of perfect arbitrage if there exist considerable transaction costs. However, if the price differential exceeds some threshold level, it would converge into the threshold band. We treat this nonlinear price adjustment with the threshold autoregression model. The analysis of American depository receipts (ADRs) for Korean companies shows that transaction costs are significantly low between Korean and US stock markets. Especially, transaction costs for blue chips popular in the markets are smaller and price adjustment speeds for them are faster than those for unpopular companies. We analyze transaction costs across countries using indices consisting of ADR prices of each country's companies. We find that transaction costs for most of the countries are low but some countries that restrict foreign investors' free access to domestic stock markets show relatively high transaction costs

Suggested Citation

  • Jae-Young Kim & Woong Yong Park, 2004. "Nonlinear Price Adjustment and Transaction Costs Between Global Stock Markets," Econometric Society 2004 Far Eastern Meetings 799, Econometric Society.
  • Handle: RePEc:ecm:feam04:799

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    depository receipts; transaction costs; nonlinear price adjustment; threshold autoregression.;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:feam04:799. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.